Emerging Market Woes as Asian Stocks Dip on Trade

As U.S. President Donald Trump prepares to wage a trade war with Beijing, Asian shares came under renewed pressure. The news sent Chinese stocks downhill, partially erasing the gains made in the week’s global rally. Despite the central bank’s interest rate hike, Argentina’s peso dropped on Thursday, weakening many market currencies.

MSCI’s largest index of Asia-Pacific shares outside Japan nose-dived by 0.8%, representing monthly plunge of 1.6%. The index has floundered MSCI ACWI, an indicator of the 47 markets of the world, for 4 months in a string as Chinese shares face turbulence due to Sino-U.S. trade concerns.

Shanghai composite index crashed by 1.1% to the brink of a 2-year low, earlier in the month of August. The official Purchasing Manager’s Index (PMI) indicated growth in China’s manufacturing sector as it unexpectedly went up in August after a two-month slide. However, the news hardly convalesced the mood since the investors are expecting further damages resulting from the trade conflicts.

From Wednesday’s record close of 2,914, S&P 500 lost 0.44% on Thursday. Japan’s Nikkei dropped by 0.8% and US S&P500 E-mini futures dropped 0.05%.

The inimical comments from the U.S. President on trade further dampened the rally in global shares that started in mid-August. Trump reportedly stated that he was all set-up to levy more excises on goods from China worth $200 million, immediately next week as the public comment period on the plan ends next week.

Ayako Sera, the market economist at Sumitomo Mitsui Trust Bank, said, “So far, Trump has carried out what he said he would do. Even though there are some doubts the US trade representative could come up with new tariffs so quickly, I suspect worries about a trade war will start to eclipse optimism based on strong US economic data.”

Trump further threatened to withdraw from the World Trade Organization if “they don’t shape up”. His (Trump’s) this move would additionally destabilize one of the bases of the present global trading system. He remarked European Union’s pitch to eradicate auto tariffs is not up to the mark and branded its trade policies “almost as bad as China.”

Such snide remarks coming from the U.S. President dissipated the positive sentiments that followed the negotiations over the North American Free Trade Agreement (NAFTA).

Owing to the circumspect mood, the yen rose by 0.6% on Thursday, its biggest daily rise in six weeks. It changed hands at 110.98 per dollar in the early Friday trade.

Having shed 0.33% in its previous session, the euro traded flat at $1.1665. However, the currency has recovered from a thirteen and a half month low of $1.1301 that hit in mid-August.

The emerging market currencies had tough luck as the currencies counting on foreign capital to fund their current account hit the hardest. The peso proved to be the world’s shoddiest-performing currency owing to the country’s poor economic health, plummeted by 10% on the day, ending its month-to-date losses on 27%.

At an emergency meeting on Thursday, the Central Bank of Argentina voted with one accord to promote its benchmark rate from 45% to 60%. However, the move failed in stabilizing the peso. This further knocked down the Brazilian real to near its recorded low in September 2015. It is down by almost 10% this month.

Having fallen 11% so far this week, in early Friday trade, the Turkish lira stood at 6.740 per dollar.

The Indonesian rupiah was seen at its lowest in three years although the country’s central bank was “decisively” interceding to vouch for the currency. Reportedly, the rupiah so far has lost 1% this month.

Patricia Kellogg is a journalist who has held many editorial roles at numerous high-profile publishers – both offline as well as online. She has an experience of more than 10 years in editing and proofreading articles across a range of sectors. She is also well versed with handling academic journal articles, theses, technical manuals, press releases, reports, feature articles, web site content, promotional material, policy papers, and grant proposals.